On raising capital – by first time entrepreneurs

Posted on January 31, 2013

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2012 has been an exciting and eventful year for LeadSift. We started the year as a bunch of computer science nerds with a cool idea, and finished it with quitting our comfy day jobs (rejecting offers from Google/Facebook/Amazon), and raising over a million dollars from some of Canada’s top investors and some awesome Angels. I am well aware of the fact that raising money is not a success, just “buying the ingredients” aka, a stepping stone towards that ulitmate goal. This post outlines some of the lessons we have learnt in the past year trying to raise funds being first time entrepreneurs hope it helps other fellow founders

1. Be honest
Most VC’s see hundreds of entrepreneurs every year and have developed an awesome bull-shit detector. Be very careful when you put in crazy numbers (revenue/users/growth etc.) in your deck. If you can not back it up, you will be called out and that will be pretty much the end of it. Not knowing and being completely honest about it, is perfectly OK and investors prefer that over you trying to pull a “fast-one”. IMHO investors prefer earnest over hip any given day.

2. Know the basics
When I started raising funds, I had very little idea about term sheets, common/preferred shares etc. If you are dealing with VC’s and you have no clue about basics of a term sheet, its not cute, just plain dumb! Do yourself a favor and grab a copy of Venture Deals by Brad Feld will ya?

3. Take the first step
You don’t always have idea what a VC firm’s selection process is (might be using logistic regression for all you know) or how many investments an Angel will make that year. Do you know how you can find that out? By taking the first step and having a chat with them. We waited for 4 months to meet an awesome angel, worrying he might be done investing for the year or not be interested in our space. Guess what happened when we finally had the courage to meet him for lunch? We got our first investment commitment by the end of it! You will be surprised at how great things can be achieved by taking the first step.

4. Start early
Raising a seed round for first time entrepreneurs, with a working prototype, pre-revenue, pre-customers is NOT easy. Something to be aware of is, the slow-no. Plan ahead of time and give yourself atleast 3-4 months to raise funds. Sometimes VC’s will keep delaying saying “no”, identify the times when a deal will not be done and move on, you can’t afford to waste your time. If a deal can be done, VC’s give a pretty strong and quick signal. Being part of an accelerator can expediate the process considerably as you typically get to pitch infront of many investors in one go.

5. Show, don’t tell
Nothing is better than having a working prototype that show cases your product. As I said investors have a very short attention span and you just “talking” about your product for 3 slides will NOT get you very far. Just show the investors what you have and all the “talking” can come later. One of the best advice that I got from one of my advisors is “Show, Don’t Tell”.

6. Get a Mentor
Startups are not easy, and raising funds can be a long drawn out process. Make sure you have advisors and mentors who have done this before and can guide you through. We lucked out by having a real life “Yoda” who guided and mentored us through the whole process. Again just ask entrepreneurs in your community for help, you’ll be surprised how many of them willingly agree.

7. Thank the VC
Getting rejected by a VC is the norm, not an exception. Every big company has been rejected multiple times. Get used to it. The worst thing you can do to yourself and the business is taking it personally and holding a grude against them. DON’T DO THAT! Follow up every rejection with an email thanking them and asking them for feedback. One of my favorite VC’s have made multiple very strategic connections for our business, mentored and advised me, all of that after rejecting LeadSift!

8. Have a good deck
Do yourself a favor and spend some time on your deck. A lot of time, you don’t get to pitch directly to the investors. You send your slide deck first and then later on you might get a chance to pitch in-person. Having a half-assed deck is huge turn-off. Think of it as your resume. Would you ever get called for an interview if your resume is horribly long with spelling mistakes? Get an advisor or mentor to review the content of your deck. Then get a designer to pretty things up. Believe me it makes a BIG difference.

9. Be Passionate while pitching
When you are pitching infront of investors please be passionate. I have seen so many times entrepreneurs just give a boring and dull pitch. Sometimes, the product was top-notch but because of the narrative, investors just did not get it! Now I am not asking to be Obama-esque, just be confident and channel the passion through. All of our founders are hardcore computer geeks and english is not our first language, but we are extremely passionate about our business and let that flow through when we are pitching.

10. Listen to all, but the final decision should be yours
You can talk to as many mentors/advisors you want, read as many startup books/blogs you can, end of the day YOU are in the driving seat. Listen to all your mentors but trust yourself and make that final decision.

Great post Tukan! Especially number 1. In our dealings, you and your team came across with a rare combination of confidence and humility. You also took the time to learn about OMERS Ventures and our portfolio before your pitch. A little thing that everyone noticed and made a big difference.